High Expectations For Tech Stocks
The upcoming earnings season is a high-stakes considering the expensive nature of tech stocks.
Tech stocks have ferociously spiraled higher after the April correction.
In April, tech stocks weren’t ready for the barrage of tariffs levied on foreign countries.
The selloff was short-lived, but sharp, and after that, we were off to the races.
As we sit here at Himalayan highs, readers must ask if there is still gas left in the tank to take us higher.
The risk-reward strongly favors readers to wait for the next dip to put new money to use.
Sure, earnings will be ok, especially for the brand-name companies, but I believe the rhetoric won’t go past the point of explaining how deep AI investment will turn into cash cow revenue streams.
It’s a tall order, and high expectations usually mean companies cannot meet or surpass them unless your company is called Nvidia.
In the short-term, the risk is to the downside, so readers should wait for tech shares to come then instead of chasing them at this stage in the game.
Remember, we are very late cycle, and it is almost like playing a game of chicken at this point.
Many tech firms are getting in on the AI game and introducing new AI functions into the workflow, but I haven’t seen anything earth-shattering yet.
It is easily plausible to see cannibalization of companies, let’s say, for instance, OpenAI comes out with their own browser which has been reported is in the works.
They then syphon off online and ad traffic from Google.
It definitely feels like the pie is getting smaller for the tech companies, and many are trying to muscle each other out of the way to claim dominance.
During Amazon’s (AMZN) last earnings call, CEO Andy Jassy said the company’s AI business “has a multibillion-dollar annual revenue run rate, but they’ve mostly fired American staff and hired an army of lower-skilled Indians to jump over earnings.
Jassy also presided over a disastrous Amazon Prime Day that resulted in a 41% sales drop on Day 1.
Google said AI Overviews searches monetize at the same rate as standard search queries, which leaves room for improvement. The company said its AI expansion and Google Cloud Platform Core products also helped power a 28% increase in its Cloud segment revenue.
Microsoft has benefited handsomely from its early investments in ChatGPT creator OpenAI. The company attributed 16 percentage points of growth in its Azure and other cloud services revenue to its AI offerings.
Then there’s Meta (META), which said it’s already seeing positive signs from its AI investments, including longer user engagement and its advertising business.
Meta is testing a new ads recommendation model for Reels, which has already increased conversion rates by 5%.
Meta is seeing 30% more advertisers are using AI creative tools in the last quarter as well.
Apple (AAPL) is considering using third-party AI models to bring Siri up to speed with the latest AI functionalities, but there’s no word from Apple on the potential move.
Apple has the lowest bar to jump over, and that shows with their stock down over 14% YTD.
CEO Tim Cook is still a one-trick pony with Steve Jobs’ iPhone, and the market is screaming and kicking at him to do something more.
Until Cook can announce the next big thing, it appears a slow grind down with the rest of no name tech that aren’t in the AI game.
Wait for tech shares to come to you and jump back in. We are late cycle, but the cycle isn’t over yet.
